When Kerry Fletcher enlisted in the armed forces, she was agreeing to risk life and limb for her country. She wasn't agreeing to be pestered for sex by a sergeant who claimed that he "might be able to convert her" from being a lesbian. And she wasn't agreeing to have her career wrecked when she spurned those advances.

Last week Fletcher, a lance bombardier in the Royal Artillery, was awarded £187,000 in compensation after an employment tribunal in Leeds concluded that it was "as severe a case of victimisation following an allegation of sexual harassment as one could see".

Yet successful cases like Fletcher's are rare. It is five years this month since the law was changed to make discrimination on the grounds of sexual orientation illegal. At the time I remember how relieved I and my gay friends were. Finally, an end to discrimination at work. Finally, a law that would back up those who had suffered overt and covert homophobia from colleagues and bosses.

Why is it, then, that in those five years just 1% of all discrimination claims - that's 1,275 sexual orientation cases in total - have made it to tribunal? Before the regulations were introduced, the government's own estimates suggested up to 390,000 employees had experienced sexual orientation discrimination, with as many as 156,000 claiming they had lost their jobs as a result.

In a recent poll of lesbian and gay people, the campaign group Stonewall found that over the last five years, nearly 20% of respondents had been bullied at work for being gay. Of those, half said the perpetrator was someone in their team and 26% identified their manager as the culprit.

Of course, the legislation was never meant to be a "cure-all" - but what is preventing people in these situations from pursuing their rights at tribunal?

A tribunal case is often the last resort for individuals who have suffered months, if not years, of harassment and discrimination. But employment tribunals appear to be finding it difficult to determine whether sexual orientation is at the root of the discrimination.

Caroline Gardener, a shop assistant with Booker Cash & Carry, was called a "filthy dyke" by a customer who became abusive when he couldn't find the product he was looking for. Gardener then threw a bag of flour at the abusive customer's head and lunged at his collar. She was dismissed following an internal disciplinary hearing. The tribunal found that she had been unfairly dismissed, but was reluctant to find that she had been treated any differently because of her sexual orientation.

Last year Claire Phillips, who worked for the Scottish Rape Crisis Network, claimed that she was fired after she complained that she'd been outed as a lesbian by one of her colleagues. The tribunal found that it was a clash of personalities that lead to her dismissal, not her sexual orientation.

Interestingly, very few women are bringing proceedings against their employers. An Advisory, Conciliation and Arbitration Service (Acas) analysis of 470 sexual-orientation employment tribunal claims shows only a third were brought by female claimants. It may be that some women choose to raise complaints of sexual discrimination rather than out themselves in the workplace.

No clear guidance has emerged on what amounts to discrimination. Each case is decided on its own facts and some disturbing examples of harassment have been found not to be discriminatory. What is clear from judgments seen so far is that a successful discrimination claim is likely to be based on overt forms of harassment and bullying. But what if the bullying is much more subtle?

Of course, some cases are settled before reaching employment tribunals, but there's no formal record of how many. Research suggests that nine out of 10 sexual-orientation claimants who settle their cases prior to tribunal hearings receive some financial compensation, but for almost half of those the damages will amount to less than £2,500.

There have been a few successful cases, like Fletcher's, where compensation has been significant. Margaret Durman and Penny Smith, a lesbian couple dismissed from their jobs as nurses in the same Barchester care home in Cornwall, won a six-figure sum after a tribunal found that they were the victims of sexual-orientation discrimination. An anonymous email had been sent to the government watchdog for nursing homes alleging bullying, incompetence and patient abuse by the couple. Soon after, both women were dismissed for gross misconduct.

Then there was the case of Jonah Ditton, employed for only eight days by a publishing company in Glasgow, during which time a manager called him a "wee poof", was aggressive towards him and then dismissed him, stating he was "not psychologically balanced". A tribunal awarded Ditton £118,000, mainly for loss of earnings.

But large awards are not the norm. Relatively speaking, sexual-orientation cases have a higher success rate than sex claims and race claims. But last year the average compensation award was £22,196. Without any funding from other sources, claimants may be reluctant to fight a claim when the level of compensation is so low.

At the firm of solicitors I work for, we see a clear pattern of nasty, homophobic behaviour in many of the cases of this nature that we are involved in. That in itself is not surprising. What we often find more surprising is the company's response when the harassment is reported.

In some cases, there has been outright denials that the behaviour took place; in others, meaningless responses which seem to be more about presenting an appearance of taking action, rather than genuine attempts to deal with the conduct. Often the employer's response further alienates the worker, who has turned to the employer seeking protection.

There's no doubt that the number of large employers engaging with their lesbian and gay staff to improve diversity and equality is increasing. Soon local authorities, the police service, government departments and other public sector bodies may have a legal duty to promote equality and the rights of lesbians and gay men as part of the equality bill, outlined in the Queen's speech this week. This should shift the emphasis, encouraging employers to be more proactive in eliminating discrimination and harassment rather than waiting for their employees to take cases against them.

But the more subtle, covert forms of discrimination - such as those that crop up in performance management and disciplinary actions - may remain well masked and very difficult to prove.

And looking ahead, the conflict between sexual orientation and religious or belief rights is likely to intensify. In a recent case, Islington council took action against one of its marriage registrars, Lillian Ladele, who refused to perform same-sex civil partnership ceremonies for religious reasons. The council disciplined her for discrimination contrary to the sexual orientation goods and services legislation. However, Ladele was successful in showing that she had been discriminated against on grounds of her religion and belief. It's a decision that is now under appeal.

• Arpita Dutt is a partner specialising in employment and discrimination law at Russell Jones & Walker. A version of this feature appears in this month's Diva magazine